How 2026 will be for SMEs: Opportunities, challenges, and the road ahead

Both before and after the national election, the year 2026 is being viewed as a period of significant challenges and opportunities for the country's Small and Medium Enterprise (SME) sector. SMEs are one of the key driving forces of Bangladesh's economy; however, entrepreneurs and experts believe the sector has yet to realise its full potential due to constraints related to financing, skills, market linkages, product diversification, and gaps in regional services.

Entrepreneurs say they are collectively optimistic about 2026. Insights gathered from conversations with nearly 40 entrepreneurs and 10 experts indicate that Bangladesh's SME sector stands at a crossroads of opportunity and challenge as it moves toward 2026. Limited access to finance, skills shortages, difficulties in technology adoption, administrative complexities, and complications related to VAT and trade licensing have emerged as major challenges for entrepreneurs.

On the other hand, opportunities such as entry into international markets, export growth, expansion of domestic production, stronger participation of women entrepreneurs, and a firmer foothold in local markets are making the future of the SME sector increasingly promising.

Entrepreneurs emphasise that if supportive government policies, facilitative assistance, simplified administrative processes, and access to technology training are ensured, 2026 could emerge as a landmark year for the SME sector.

Challenges and opportunities

Rubina Akter Munni, owner of Design by Rubina, said that 2026 is set to bring new opportunities for Bangladeshi SMEs, particularly in the leather, jute, handicrafts, and ceramics sectors, where Bangladesh has already built recognition in international markets.

She said, "Bangladesh is increasingly being recognised as a sourcing hub. Entrepreneurs from sectors beyond leather are reaching out to us, which proves that the SME sector now has diverse potential."

Rubina Akter Munni noted that she, along with 31 other SME entrepreneurs, participated in the 'Made in Bangladesh' SME Fair in the United Kingdom in December. She said, "During our visit to the UK, we learned how leather, jute, and handicraft products can be upgraded to enter international markets."

The Made in Bangladesh SME Fair in the UK was organised by the Bangladesh High Commission, London, United Kingdom, on 13–14 December 2025.

Rubina Akter Munni's enterprise produces leather goods and a wide range of jute products. She said that while there are opportunities, challenges remain significant. According to her, VAT, trade licensing, and compliance-related complications pose major obstacles for SMEs.

"To become compliant, one has to go through an abnormal level of hassle. In Gazipur, it took two months of running around, and even after hiring a lawyer, I finally managed to obtain the trade licence," she said.

Shortages of raw materials and accessories are another major challenge. While raw materials for the leather and jute sectors are available locally, the quality of packaging, zippers, and other accessories needs improvement.

According to Rubina, without policy support, simplified administrative procedures, and practical SME-focused policies, it will not be possible to fully capitalise on international market opportunities.

Expanding exports through increased domestic production

Antu Kareem, managing director of Pentagon Group, emphasised reducing import dependency in the domestic baby care and cosmetics sector by boosting local production to increase exports and foreign currency earnings.

He said, "Around 98% of raw materials and supporting inputs used in Bangladesh's baby care and cosmetics sector are still imported. Local production would reduce costs and allow foreign currency to flow into the country through exports."

However, export activities are being hindered by complexities related to duty-free facilities and regulatory approvals. Kareem explained that without the necessary documentation from BSCIC, obtaining an industrial IRC is not possible. SMEs also struggle to access duty-free raw materials, making it difficult to compete internationally.

His factory is located in the Rohitpur Industrial Estate under BSCIC, where internationally compliant baby products are manufactured. Although the brand is already registered in several countries, high production costs are preventing exports.

Antu Kareem said that the government has taken an initiative to provide temporary duty-free bonded facilities against bank guarantees for partial exporters to increase and diversify export earnings.

"If this is implemented properly, 2026 will bring a major opportunity for SMEs," he said.

He also noted that there is strong export potential for baby care and cosmetics products in Middle Eastern and African markets.

Safe food sector 

Mahmudunnabi Sohag, founder and CEO of Shotomul Agro, which began in 2017 in Ahmedpur village of Natore with a capital of just Tk600, now has assets worth nearly Tk40 million. The company produces and markets poultry, beef and buffalo meat, mustard oil, date molasses, rice, lachcha shemai, and around 300 different products.

Mahmudunnabi Sohag said, "I hope that once the election takes place in February, the country's economic situation will improve further and sales will return to normal. Right now, there is a stagnant atmosphere in the country. Businesses are at a standstill, and people are not spending. I hope these challenges will be overcome after the election in 2026."

He added, "If there were easier Islamic financing options, it would be a huge advantage for SMEs. Currently, funds are not reaching small businesses. Bridging this gap is essential."

Local and international market expansion

Shahid Hussain Shamim, former vice president of the Bangladesh Handicrafts Manufacturers and Exporters Association (Banglacraft), has worked in the SME sector for many years. He said that despite potential changes and challenges after 2026, he sees this period as a transformative opportunity for entrepreneurs.

A trustee of Saidpur Enterprises, Shamim said, "Our jute-based products—especially various types of bags—have already reached markets in the United States and Europe, and there is demand in Japan as well. We export bags, shopping bags, laundry bags, and many other products."

According to Shamim, the biggest crisis for SMEs is not finance but a lack of skills. Improvements in productivity and time management would make it easier to overcome challenges.

Demand for expanded government export support

Lipi Khandaker, founder of Bibiana, said that boutique and handmade fashion businesses have come under severe pressure amid recent instability in the country. SMEs continue to lag behind in access to bank loans, government support, and technology adoption.

She said, "Women have progressed individually, but the necessary backend support remains limited. Those who already have access receive more, while those who don't are gradually disappearing."

Lipi Khandaker stressed the need for increased government support for participation in export-oriented exhibitions and fashion fairs.

"Some concessions are provided by EPB. But those who are doing good work yet lack strong backing need more support—especially designers and entrepreneurs outside the garments sector," she said.

According to her, participation in exhibitions allows entrepreneurs not only to sell products but also to secure large orders—something Bangladeshi designers are already capable of doing.

She also pointed out that SMEs lagging in digital marketing and technology adoption face major challenges. With proper branding and marketing, international market opportunities could expand significantly.

Calling for increased concessions for export-oriented exhibitions and fashion fairs, she said, "Even with quality work, SMEs cannot access international markets without strong backing. Greater government support for overseas exhibitions would enable entrepreneurs to secure larger orders."

Hasina Mukta, owner of Natunatta Boutique and Handicrafts, said, "Overall, I am optimistic about 2026. We have survived the pandemic and political instability. Now I see renewed energy everywhere—including within myself."

According to her, the business environment has become relatively more comfortable recently. "The intensity of informal pressures and obstacles has decreased. Working now feels much more comfortable," she said.

Viewing 2026 as a year of opportunity, she added, "Banks are showing interest in the SME sector, which is positive for business expansion. However, without increased government support for technology adoption and training, many entrepreneurs will fall behind."

Her training centre provides training to students from various universities and new entrepreneurs. She stressed, "To keep pace with the world, government-backed training and support are essential."

Regarding the national election scheduled for February 2026, Hasina Mukta said, "There is always some uncertainty around elections—what will happen, what won't. But I hope nothing bad happens and that the election is conducted properly. We are moving forward with that hope."

SMEs in 2025: Lessons learned amid challenges

Entrepreneurs note that the SME ecosystem is almost entirely Dhaka-centric. As a result, entrepreneurs outside the capital must spend significant time and money travelling to Dhaka for training, raw material sourcing, and administrative work, which is extremely burdensome for them. Entrepreneurs emphasise advanced training to ensure their products remain competitive at international standards.

SME Foundation Managing Director Anwar Hossain Chowdhury said, "We went through many challenges in 2025. But I always say—where there are challenges, there are opportunities. Our job is to identify those opportunities and present them to entrepreneurs. Challenges will remain in 2026, but we are preparing to address them."

He noted that access to finance remains the biggest challenge, particularly for marginal, sub-urban, and rural entrepreneurs. There are also gaps in capacity building and skill development.

Cottage, micro, small, and medium (CMSME) entrepreneurs are still largely excluded from bank financing. Yet loans and financial support are essential to move their initiatives forward. "In 2026, we want to see far more SMEs brought under formal financing than at present," he said.

Secondly, he said exporters should not face excessive obstacles when exporting products. "Making exports easier is one of our major concerns."

Another key issue is the burden of VAT, tax, and duties imposed on SMEs. "Taxes must be paid—there is no question about that. But SMEs should not be taxed at the same rate as large industries. There must be separate, tolerable rates for SMEs. Otherwise, small enterprises will not survive. We want an SME-friendly tax system and expect the government to establish such a framework."

Regarding the SME Foundation itself, Chowdhury said, "To this day, the SME Foundation does not have its own premises in Dhaka. Since 2007, we have been operating from rented offices. For years, we have been requesting a piece of land to establish our own office and operate independently."

He further said, "There is sufficient policy support from the government and Bangladesh Bank for SME financing. The problem lies with banks and non-bank financial institutions, which are not disbursing funds to small and medium entrepreneurs. Funds are being given repeatedly to familiar clients—'oil on the oily head,' so to speak. They say SMEs lack documentation and records, and these issues still persist."

"Still, we see a ray of hope. The government and financial institutions are becoming more aware of these issues. The real test is how effectively these measures are implemented," he added.

According to the draft National MSME Policy–2025, based on the Bangladesh Bureau of Statistics (BBS) Economic Census 2024, there are currently around 11.8 million economic units in the country, employing approximately 30.8 million people directly and indirectly.

Meanwhile, the Economic Census 2013 showed that CMSMEs accounted for 99.93% of all economic units and 85.85% of total employment in the country.

These statistics clearly demonstrate that the CMSME sector plays a crucial role in the national economy and employment, serving as the backbone of Bangladesh's economic engine.

Sector importance and optimism

According to the Bangladesh Economic Survey 2024, the SME sector contributes around 30% to national GDP and 37.95% to industrial sector participation. However, the SME Foundation notes that this contribution is significantly lower than in neighbouring countries such as India (around 45%) and Vietnam (40%).

Jahir Rayhan. Sketch: TBS

Jahir Rayhan is a Staff Correspondent at TBS.